CBRC cautions big banks

China's banking regulatory authority cautioned the country's large-scale lenders about credit risks in nine major sectors closely related to the economic cycle or suffering from overcapacity, the official China Securities Journal (CSJ) reported Monday, citing unnamed sources from the regulator.

In particular, industries that directly weather the economic climate such as real estate and engineering machinery, as well as those plagued by excessive capacity such as the steel, nonferrous metals, cement, coal-to-chemicals, shipbuilding, wind power equipment and photovoltaic sectors, require special attention from large-scale commercial banks, according to a document recently released by the China Banking Regulatory Commission (CBRC), which outlined a focus for large lenders' loan supervision work in 2013.

"Given the fact that the commercial banks have perfect rules to minimize credit risks, including risk evaluation before lending and accounting checks after lending, this regulatory reminder can be seen as a move to improve the implementation of standardized loan procedures to reduce risks linked to some high-risk sectors," Zhao Xijun, deputy dean of the School of Finance at Renmin University of China, told the Global Times Monday.

Zhao also mentioned that Chinese banks should pay close attention to the strategic risks associated with newly emerging industries and adjust their credit structures and policies accordingly.

The official risk warning comes as the recent bankruptcy of Wuxi Suntech highlights the serious overcapacity vexing the photovoltaic industry, which has undergone rapid development over the past decade with easy access to financing. Last week, a group of eight creditor banks whose outstanding loans to the Chinese solar panel maker amounted to 7.1 billion yuan ($1.14 billion) filed an application for bankruptcy reorganization of the company.

Loans to the above-mentioned sectors are estimated to stay at around 30 to 40 trillion yuan, a heavy portion of the total outstanding loans by Chinese banks, the CSJ report said.

"Chinese banks have built up massive credit risks from loans aimed at supporting infrastructure construction or strategic emerging industries such as new energy since 2009," Liao Qiang, director of financial institution ratings at Standard & Poor's, told the Global Times Monday.

Yet the CBRC's call for special attention could be nothing more than a regular risk reminder, Liao noted.

"Based on past experience, it is common practice for the CBRC to issue documents or notices warning banks to be on guard against various kinds of risks," Liao explained.